More Government Equals More Recession

The latest headlines have the government taking a larger stake in Citi, upping it’s share to 40%.  This is just going to stretch out the recession we’re in even longer.  If they are going to take a stake in the failing bank, the Feds need to stop taking baby steps and flat out nationalize already.

Of course, letting the banks fail and letting the free markets work is out of the question now.  The reason is that government intervention has eliminated failure as an option.  It’s a tangled mess that all went back to the original TARP plan, that in hindsight, looks like what we needed.

The entire problem with the system right now is that there is too much bad debt and malinvestment.  The original goal of the TARP was to eliminate this debt.  Instead, though, the Feds realized that if they actually determined the market value for these securities, a lot of banks would fail.  They then modified the TARP to give money directly to the banks, so they could offset their bad assets.  This failed because the assets were basically worthless and no amount of money could offset the malinvestment.

So, here we are, with the banks still in the same predicament, and the taxpayers on the hook for $300-$700 billion.  We don’t the exact number because the government lost count somewhere along the way.  Remember, as protection for the taxpayers, we got shares in the banks.  So if they fail or get nationalized, we lose all our money.  Everyone else gets away for free while the taxpayers are left holding the bag.

Everyone talks about how bad the failures of Bear Stearns, Lehman Brothers, and Washington Mutual were.  Honestly, though, they weren’t that bad compared to the Great Depression II Obama is trying to create.  Shareholders lost everything, the bond holders got 20 cents on the dollar and a lot of people got screwed, but the failure was pretty orderly.  The bankruptcy system and the method of failure works.  Sure, it’s painful, but at least we know what we’re getting and we can move on.

We’re in a situation now where no one wants to let the banks fail, and we will bankrupt the nation and the taxpayers in order to make it work.  We’ve already been screwed over enough, and a couple more months of pain from the failure of a few more banks isn’t going to kill us.  Just get it over with so we can move on.  Don’t keep stringing this charade out.

The more the government gets involved, the bigger the conflict of interest and the bigger the problem gets.  We need the liquidate the bad debt.  Plain and simple.  We need failure and we need the free markets to work.  Why are we going to prop up these banks that made the terrible decisions that got us here?  It’s absolute nonsense.

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2 Responses to “More Government Equals More Recession”

  1. kip Says:

    Are you kidding?!?
    If the banks fail, we go into a hyper depression. I’m talking pre-Hitler Germany. Even republicans don’t want that.
    Why in the world would you???

    • bevans623 Says:

      First, you need to separate the banking industry from our economy. They are not one in the same. Second, do you know one of the main reasons for the problems in post WWI Germany? It was hyperinflation caused by the central bank printing too much money! Also, in Japan, during their “Lost Decade” their central bank held rates at zero, and they propped up banks that should have failed. These are real examples of the failures of central planning.

      One of the only examples of government intervention that has worked is in Sweden, where the requirement was for the bank to liquidate their assets and declare bankruptcy before getting government help. Then the government spun off the banks for a profit.

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